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San Beda College of Law: Insurance Code
San Beda College of Law: Insurance Code
30 MEMORY AID
IN
COMMERCIAL LAW
INSURANCE CODE
(P.D. No. 1460)
I. GENERAL CONCEPTS CONTRACT OF INSURANCE An agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. (Sec. 2, par. 2, IC) DOING AN INSURANCE BUSINESS OR TRANSACTING AN INSURANCE BUSINESS (Sec. 2, par. 4) 1. Making or proposing to make, as insurer, any insurance contract; 2. Making or proposing to make, as surety, any contract of suretyship as a vocation, not as a mere incident to any other legitimate business of a surety; 3. Doing any insurance business, including a reinsurance business; 4. Doing or proposing to do any business in substance equivalent to any of the foregoing II. CHARACTERISTICS OF AN INSURANCE CONTRACT (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.) 1. Consensual it is perfected by the meeting of the minds of the parties. 2. Voluntary the parties may incorporate such terms and conditions as they may deem convenient. 3. Aleatory it depends upon some contingent event. 4. Unilateral imposes legal duties only on the insurer who promises to indemnify in case of loss. 5. Conditional It is subject to conditions the principal one of which is the happening of the event insured against. 6. Contract of indemnity Except life and accident insurance, a contract of insurance is a contract of indemnity whereby the insurer promises to make good only the loss of the insured.
REQUISITES OF A CONTRACT OF INSURANCE (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.) 1. A subject matter which the insured has an insurable interest. 2. Event or peril insured against which may be any future contingent or unknown event, past or future and a duration for the risk thereof. 3. A promise to pay or indemnify in a fixed or ascertainable amount. 4. A consideration known as premium. 5. Meeting of the minds of the parties. 5 CARDINAL PRINCIPLES IN INSURANCE 1. Insurable Interest 2. Principle of Utmost Good Faith An insurance contract requires utmost good faith (uberrimae fidei) between the parties. The applicant is enjoined to disclose any material fact, which he knows or ought to know. Reason: An insurance contract is an aleatory contract. The insurer relies on the representation of the applicant, who is in the best position to know the state of his health. 3. Contract of Indemnity It is the basis of all property insurance. The insured who has insurable interest over a property is only entitled to recover the amount of actual loss sustained and the burden is upon him to establish the amount of such loss (Reviewer on Commercial Law, Professors Sundiang and Aquino) Rules: a. Applies only to property insurance except when the creditor insures the life of his debtor. b. Life insurance is not a contract of indemnity. c. Insurance contracts are not wagering contracts. (Sec. 4) 4. Contract of Adhesion (Fine Print Rule)
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e. For recovery of loss in excess of insurance coverage CONSTRUCTION OF INSURANCE CONTRACT The ambiguous terms are to be construed strictly against the insurer, and liberally in favor of the insured. However, if the terms are clear, there is no room for interpretation. (Calanoc vs. Court of Appeals, 98 Phil. 79) III. DISTINGUISHING ELEMENTS OF AN INSURANCE CONTRACT 1. The insured possesses an insurable interest susceptible of pecuniary estimation; 2. The insured is subject to a risk of loss through the destruction or impairment of that interest by the happening of designated perils; 3. The insurer assumes that risk of loss; 4. Such assumption is part of a general scheme to distribute actual losses among a large group or substantial number of persons bearing somewhat similar risks; and 5. The insured makes a ratable contribution (premium) to a general insurance fund. A contract possessing only the first 3 elements above is a risk-shifting device. If all the elements, it is a riskdistributing device. (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.) IV. PERFECTION OF AN INSURANCE CONTRACT An insurance contract is a consensual contract and is therefore perfected the moment there is a meeting of minds with respect to the object and the cause or consideration. What is being followed in insurance contracts is what is known as the cognition theory. Thus, an acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge. (Enriquez vs. Sun Life Assurance Co. of Canada, 41 Phil. 269) Binding Receipt A mere acknowledgment on behalf of the company that its branch office had
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5. 6. 7.
Interest of the insured in the property if he is not the absolute owner; Risk insured against; and Duration of the insurance.
Persons entitled to recover on the policy (sec. 53): The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or to whose benefit it is made, unless otherwise specified in the policy. Kinds: 1. OPEN POLICY value of thing insured is not agreed upon, but left to be ascertained in case of loss. (Sec. 60) The actual loss, as determined, will represent the total indemnity due the insured from the insurer except only that the total indemnity shall not exceed the face value of the policy. (Development Insurance Corp. vs. IAC, 143 SCRA 62) 2. VALUED POLICY definite valuation of the property insured is agreed by both parties, and written on the face of policy. (Sec. 61) In the absence of fraud or mistake, the agreed valuation will be paid in case of total loss of the property, unless the insurance is for a lower amount. 3. RUNNING POLICY contemplates successive insurances and which provides that the object of the policy may from time to time be defined (Sec. 62) V. TYPES OF INSURANCE CONTRACTS 1. Life insurance a. Individual life (Secs. 179183, 227) b. Group life (Secs. 50, last par., 228) c. Industrial life (Secs. 229231) 2. Non-life insurance a. Marine (Secs. 99166) b. Fire (Secs. 167173) c. Casualty (Sec. 174) 3. Contracts of bonding or suretyship (Secs. 175178) Note: 1. Health and accident insurance are either covered under life (Sec. 180) or casualty insurance. (Sec. 174). 2. Marine, fire, and the property aspect of casualty insurance are also referred to as property insurance.
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VI. PARTIES TO INSURANCE CONTRACT 1. Insurer - Person who undertakes to indemnify another. For a person to be called an insurance agent, it is necessary that he should perform the function for compensation. (Aisporna vs. CA, 113 SCRA 459) 2. Insured - The party to be indemnified upon the occurrence of the loss. He must have capacity to contract, must possess an insurable interest in the subject of the insurance and must not be a public enemy. A public enemy- a nation with whom the Philippines is at war and it includes every citizen or subject of such nation. 3. Beneficiary - A person designated to receive proceeds of policy when risk attaches. Rules in the designation of the beneficiary: a. LIFE i. A person who insures his own life can designate any person as his beneficiary, whether or not the beneficiary has an insurable interest in the life of the insured subject to the limitations under Art. 739 and Art. 2012 of the NCC. Reason: in essence, a life insurance policy is no different form a civil donation insofar as the beneficiary is concerned. Both are founded on the same consideration of liberality. (Insular Life vs. Ebrado, 80 SCRA 181) ii. A person who insures the life of another person and name himself as the beneficiary must have an insurable interest in such life. (Sec. 10) iii. As a general rule, the designation of a beneficiary is revocable unless the insured expressly waived the right to revoke in the policy. (Sec. 11) iv. The interest of a beneficiary in a life insurance policy shall be
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forfeited when the beneficiary is the principal accomplice or accessory in willfully bringing about the death of the insured in which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified. (Sec. 12) b. PROPERTY The beneficiary of property insurance must have an insurable interest in such property, which must exist not only at the time the policy takes effect but also when the loss occurs. (Sec. 13 and 18). Effects of Irrevocable Designation Of Beneficiary Insured cannot: 1. Assign the policy 2. Take the cash surrender value of the policy 3. Allow his creditors to attach or execute on the policy; 4. Add new beneficiary; or 5. Change the irrevocable designation to revocable, even though the change is just and reasonable. The insured does not even retain the power to destroy the contract by refusing to pay the premiums for the beneficiary can protect his interest by paying such premiums for he has an interest in the fulfillment of the obligation. (Vance, p. 665, cited in de Leon, p. 101, 2002 ed.) VII. INSURABLE INTEREST A. In General A person has an insurable interest in the subject matter if he is so connected, so situated, so circumstanced, so related, that by the preservation of the same he shall derive pecuniary benefit, and by its destruction he shall suffer pecuniary loss, damage or prejudice. B. Life Every person has an insurable interest in the life and health: a. of himself, of his spouse and of his children; b. of any person on whom he depends wholly or in part for education or support; c. of any person under a legal obligation to him to pay money or
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS Ramos EDP: Beatrix I. Ramos SUBJECT HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario (Transportation Laws); Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
Must exist at the time the policy takes effect and when the loss occurs Limited to actual value of interest in property insured. An expectation of a benefit to be derived from the continued existence of the property insured must have a legal basis.
The beneficiary must have insurable interest over the thing insured.
SPECIAL CASES 1. In case of a carrier or depositary A carrier or depository of any kind has an insurable interest in a thing held by him as such, to the extent of his liability but not to exceed the value thereof (Sec. 15) 2. In case of a mortgaged property The mortgagor and mortgagee each have an insurable interest in the property mortgaged and this interest is separate and distinct from the other. a. Mortgagor As owner, has an insurable interest therein to the extent of its value, even though the mortgage debt equals such value. The reason is that the loss or destruction
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to the extent of the money paid by such insurer. (Palileo vs. Cosio) VIII. RISK What may be insured against: 1. Future contingent event resulting in loss or damage Ex. Possible future fire 2. Past unknown event resulting in loss or damage Ex. Fact of past sinking of a vessel unknown to the parties 3. Contingent liability Ex. Reinsurance IX. PREMIUM PAYMENTS Consideration paid an insurer for undertaking to indemnify the insured against a specified peril. Basis of the right of the insurer to collect premiums: Assumption of risk.
GENERAL RULE: No policy issued by an insurance company is valid and binding until actual payment of premium. Any agreement to the contrary is void. (Sec. 77) EXCEPTIONS: 1. In case of life or industrial life insurance, when the grace periods applies; (Sec. 77) 2. When the insurer makes a written acknowledgment of the receipt premium; (Sec. 78) 3. Section 77 may not apply if the parties have agreed to the payment of the premium in installments and partial payment has been made at the time of the loss. (Makati Tuscany Condominium Corp. v. CA, 215 SCRA 462) 4. Where a credit term has been agreed upon. (UCPB vs. Masagana Telemart, 308 SCRA 259) 5. Where the parties are barred by estoppel. (UCPB vs. Maagana Telemart, 356 SCRA 307)
Section 77 merely precludes the parties from stipulating that the policy is valid even if the premiums are not paid. (Makati Tuscany Condominium Corp. v. CA, 215 SCRA 462)
Effects of Loss Payable Clause a. The contract is deemed to be upon the interest of the mortgagor; hence, he does not cease to be a party to the contract. b. Any act of the mortgagor prior to the loss, which would otherwise avoid the insurance affects the mortgagee even if the property is in the hands of the mortgagee. c. Any act, which under the contract of insurance is to be performed by the mortgagor, may be performed by the mortgagee with the same effect. d. In case of loss, the mortgagee is entitled to the proceeds to the extent of his credit. e. Upon recovery by the mortgagee to the extent of his credit, the debt is extinguished. In case a mortgagee insures his own interest and a loss occurs, he is entitled to the proceeds of the insurance but he is not allowed to retain his claim against the mortgagor as the claim is discharged but it passes by subrogation to the insurer
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CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS Ramos EDP: Beatrix I. Ramos SUBJECT HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario (Transportation Laws); Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
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PREMIUM
Levied and paid to meet anticipated losses. Payment is not enforceable against the insured.
ASSESSMENT
Collected to meet actual losses. Payment is enforceable once levied unless otherwise agreed upon. It becomes a debt once properly levied unless otherwise agreed.
ENTITLEMENT OF INSURED TO RETURN OF PREMIUMS PAID A. Whole: If the thing insured was never exposed to the risks insured against; (Sec. 79) 2. If contract is voidable due to the fraud or misrepresentation of insurer or his agents; (Sec. 81) 3. If contract is voidable because of the existence of facts of which the insured was ignorant without his fault; (Sec. 81) 4. When by any default of the insured other than actual fraud, the insurer never incurred liability; (Sec. 81) 5. When rescission is granted due to the insurers breach of contract. (Sec. 74) B. Pro rata: 1. When the insurance is for a definite period and the insured surrenders his policy before the termination thereof; Exceptions: a. policy not made for a definite period of time b. short period rate is agreed upon c. life insurance policy 2. When there is over-insurance (Sec. 82); Instances when premiums are not recoverable: 1. When the risk has already attached and the risk is entire and indivisible. 2. In life insurance. 3. When the contract is rescindable or rendered void ab initio by the fraud of the insured. 4. When the contract is illegal and the parties are in pari delicto.
COMMERCIAL LAW COMMITTEE Not a debt.
1.
X. TRANSFER OF POLICY 1. Life Insurance It can be transferred even without the consent of the insurer except when there is a stipulation requiring the consent of the insurer before transfer. (Sec. 181) Reason: The policy does not represent a personal agreement between the insured and the insurer. 2. Property insurance It cannot be transferred without the consent of the insurer. Reason: The insurer approved the policy based on the personal qualification and the insurable interest of the insured. 3. Casualty insurance It cannot be transferred without the consent of the insurer. (Paterson cited in de Leon p. 82) Reason: The moral hazards are as great as those of property insurance. CHANE OF INTEREST IN THE THING INSURED The mere (absolute) transfer of the thing insured does not transfer the policy, but suspends it until the same person becomes the owner of both the policy and the thing insured. (Sec. 58) Reason: Insurance contract is personal. GENERAL RULE: A change of interest in any part of a thing insured unaccompanied by a corresponding change of interest in the insurance suspends the insurance to an equivalent extent, until the interests in the thing and the interest in the insurance are vested in the same person. (Sec. 20)
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS Ramos EDP: Beatrix I. Ramos SUBJECT HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario (Transportation Laws); Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
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EXCEPTIONS: 1. In life, health and accident insurance.(Sec. 20); 2. Change in interest in the thing insured after occurrence of an injury which results in a loss. (Sec. 21); 3. Change in interest in one or more of several distinct things separately insured by one policy. (Sec. 22); 4. Change of interest, by will or succession, on the death of the insured. (Sec. 23); 5. Transfer of interest by one of several partners, joint owners, or owners in common, who are jointly insured, to others. (Sec. 24); 6. When a policy is so framed that it will inure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured. (Sec. 57); 7. When there is an express prohibition against alienation in the policy, in case of alienation, the contract of insurance is not merely suspended but avoided. (Art. 1306, NCC).
XI. ASCERTAINMENT AND CONTROL OF RISK AND LOSS A. Four Primary Concerns of the Parties: 1. Correct estimation of the risk; 2. Precise delimitation of the risk; 3. Control of the risk; 4. Determining whether a loss occurred and if so, the amount of such loss. B. Devices used for ascertaining and controlling risk and loss: 1. Concealment A neglect to communicate that which a party knows and ought to communicate (Sec. 26) Requisites: a. A party knows a fact which he neglects to communicate or disclose to the other.
b. Such party concealing is duty bound to disclose such fact to the other. c. Such party concealing makes no warranty as to the fact concealed. d. The other party has not the means of ascertaining the fact concealed. e. Material Effects: Entitles insurer to rescind, even if the death or loss is due to a cause not related to the concealed matter (Sec. 27). Note: Good Faith is not a defense in concealment. Sec. 27 clearly provides that, the concealment whether intentional or unintentional entitles the injured party to rescind the contract of insurance. Test of Materiality: Determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the advantages of the proposed contract, or in making his inquiries (Sec. 31). Exception to Sec. 31: a. Incontestability clause b. Matters under Sec.110 (marine insurance) The waiver of medical examination in a non-medical insurance contract renders even more material the information required of the applicant concerning the previous conditions of health and diseases suffered. (Sunlife v. Sps. Bacani, 246 SCRA 268). The right to information of material facts may be waived, either by the terms of the insurance or by neglect to make inquiries as to such facts where they are distinctly implied in other facts of which information is communicated. (Sec.33) Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceiver will not avoid the policy even though they are untrue. Reason: The insurer cannot rely on those statements. He must make further inquiry. (Philamcare Health
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3. Warranties Statement or promise by the insured set forth in the policy or by reference incorporated therein, the untruth or non-fulfillment of which in any respect, and without reference to whether insurer was in fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the insurer. Purpose: To eliminate potentially increasing hazards which may either be due to the acts of the insured or to the change to the condition of the property. Kinds: a. EXPRESS an agreement expressed in a policy whereby the insured stipulates that certain facts relating to the risk are or shall be true, or certain acts relating to the same subject have been or shall be done. b. IMPLIED - it is deemed included in the contract although not expressly mentioned. Example: In marine insurance, seaworthiness of the vessel. Effects of breach of warranty: a. Material GENERAL RULE: Violation of material warranty or of a material provision of a policy will entitle the other party to rescind the contract. (Sec. 74) EXCEPTIONS: a. Loss occurs before the time of performance of the warranty. b. The performances becomes unlawful at the place of the contract. c. Performance becomes impossible. (Sec. 73) b. Immaterial (ex. Other insurance clause) GENERAL RULE: It will not avoid the policy. EXCEPTION: When the policy expressly provides or declares that a violation thereof will avoid it. (Sec. 75) WARRANTY
Part of the contract Written on the policy, actually or by reference Presumed material
REPRESENTATION
Mere collateral inducement May be written in the policy or may be oral. Must be proved to be material
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4. Conditions Events signifying in its broadest sense either an occurrence or a non-occurrence that alters the previously existing legal relations of the parties to the contract. They may be conditions precedent or conditions subsequent. Effect of breach: a. Condition precedent prevents the accrual of cause of action b. Condition subsequent avoids the policy or entitles the insurer to rescind The insurer may also protect himself against fraudulent claims of loss and this he attempts to do by inserting in the policy various conditions which take the form of conditions precedent. For instance, there are conditions requiring immediate notice of loss or injury and detailed proofs of loss within a limited period. 5. Exceptions Provisions that may specify excepted perils. It makes more definite the coverage indicated by the general description of the risk by excluding certain specified risk that otherwise would be included under the general language describing the risks assumed. Effect: Limit the coverage of the contract. RESCISSION Grounds: A. Concealment B. Misrepresentation C. Breach of material warranty D. Breach of a condition subsequent Waiver of the right to rescind: Acceptance of premium payments despite the knowledge of the ground for rescission. (Sec. 45) Limitations on the right of the insurer to rescind: 1. Non-life such right must be exercised prior to the commencement of an action on the contract; 2. Life such right must be availed of during the first two years from the date of issue of policy or its last
CANCELLATION OF NON-LIFE INSURANCE POLICY Right of the insurer to abandon the contract on the occurrence of certain grounds after the effectivity date of a non-life policy. Grounds: 1. Non-payment of premium; 2. Conviction of a crime out of acts increasing the hazard insured against; 3. Discovery of fraud or material misrepresentation; 4. Discovery of willful or reckless acts of omissions increasing the hazard insured against; 5. Physical changes in property making the property uninsurable; and 6. Determination by the Insurance Commissioner that the continuation of the policy would violate the Insurance Code. (Sec. 64) Requirements: 1. Prior notice of cancellation to the insured; 2. Notice must be in writing, mailed or delivered to the named insured at the address shown in the policy; 3. Notice must state which of the grounds set forth in Sec. 64 is relied upon and upon request of the insured, the insurer must furnish facts on which the cancellation is based; 4. Grounds should have existed after the effectivity date of the policy. XII. INCONTESTABILITY CLAUSE Clause in life insurance policy that stipulates that the policy shall be incontestable after a stated period. Requisites: 1. Life insurance policy 2. Payable on the death of the insured 3. It has been in force during the lifetime of the insured for a period of at least two years from the date of its issue or of its last reinstatement Note: The period of 2 years may be shortened but it cannot be extended by stipulation.
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Incontestability only deprives the insurer of those defenses which arise in connection with the formation and operation of the policy prior to loss. (Prof. De Leon, p. 173 citing Wyatt and Wyatt, p. 878) BARRED DEFENSES OF THE INSURER
1. 2. Policy is void ab initio Policy is rescindable by reason of the fraudulent concealment or misrepresentati on of the insured or his agent
property with the same insurance company. Effect in case of loss: 1. The insurer is bound only to pay to the extent of the real value of the property lost; 2. The insured is entitled to recover the amount of premium corresponding to the excess in value of the property; B. DOUBLE INSURANCE exists where same person is insured by several insurers separately in respect to same subject and interest. (Sec. 93) Requisites: 1. Person insured is the same; 2. Two or more insurers insuring separately; 3. Subject matter is the same; 4. Interest insured is also the same; 5. Risk or peril insured against is likewise the same. Effects: Where double insurance is allowed, but over insurance results: (Sec. 94) 1. The insured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may select, up to the amount for which the insurers are severally liable under their respective contracts; 2. Where the policy under which the insured claims is a valued policy, the insured must give credit as against the valuation for any sum received by him under any other policy without regard to the actual value of the subject matter insured; 3. Where the policy under which the insured claims is an unvalued policy he must give credit, as against the full insurable value, for any sum received by him under any policy; 4. Where the insured receives any sum in excess of the valuation in the case of valued policies, or of the insurable value in the case of unvalued policies, he must hold such sum in trust for the insurers, according to their right of contribution among themselves;
XIII. A. OVER-INSURANCE results when the insured insures the same property for an amount greater than the value of the
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companies whereby one agrees to cede and the other to accept reinsurance business pursuant to provisions specified in the treaty. (Prof. De Leon, p. 306) 2. Automatic reinsurance The reinsured is bound to cede and the reinsurer is obligated to accept a fixed share of the risk which has to be reinsured under the contract. (Prof. De Leon, p. 305) 3. Facultative reinsurance There is no obligation to cede or accept participation in the risk each party having a free choice. But once the share is accepted, the obligation is absolute and the liability thereunder can be discharged only by payment. (Equitable Ins. & Casualty Co. vs. Rural Ins. & Surety Co., Inc. 4 SCRA 343) 4. Retrocession A transaction whereby the reinsurer in turn, passes to another insurer a portion of the risk reinsured. It is really the reinsurance of reinsurance. (Prof. De Leon, p. 305) XIV. A. LOSS, IN INSURANCE Injury or damage sustained by the insured in consequence of the happening of one or more of the accidents or misfortune against which the insurer, in consideration of the premium, has undertaken to indemnify the insured. (Bonifacio Bros. Inc. vs. Mora, 20 SCRA 261) Loss for which insurer is liable
1. Loss the proximate cause of which is the peril insured against (Sec. 84); Loss the immediate cause of which is the peril insured against except where proximate cause is an excepted peril; Loss through
REINSURANCE
Involves different interest Insurer becomes the insured in relation to reinsurer Original insured has no interest in the reinsurance contract. Subject of insurance is the original insurers risk Insureds consent not necessary
2.
3.
3.
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS Ramos EDP: Beatrix I. Ramos SUBJECT HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario (Transportation Laws); Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
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The indemnification of the loss of the insured. TIME FOR PAYMENT OF CLAIMS NON-LIFE LIFE POLICIES POLICIES
a. Maturing upon the expiration of the term The proceeds are immediately payable to the insured, unless they are made payable in installments or as annuity, in which case, the installments or annuities shall be paid as they become due. b. Maturing at the death of the insured, occurring prior to the expiration of the term stipulated The proceeds are payable to the beneficiaries within 60 days after presentation and filing of proof of death. The proceeds shall be paid within 30 days after the receipt by the insurer of proof of loss, and ascertainment of the loss or damage by agreement of the parties or by arbitration but not later than 90 days from such receipt of proof of loss whether or not ascertainment is had or made.
4.
5.
Proximate Cause An event that sets all other events in motion without any intervening or independent case, without which the injury or loss would not have occurred. REQUISITES FOR RECOVERY UPON INSURANCE 1. The insured must have insurable interest in the subject matter; 2. That interest is covered by the policy; 3. There must be a loss; and 4. The loss must be proximately caused by the peril insured against. NOTICE OF LOSS In fire insurance
Required Failure to give notice will defeat the right of the insured to recover.
In case of an unreasonable delay in the payment of the insureds claim by the insurer, the insured can recover: 1) attorneys fees; 2) expenses incurred by reason of the unreasonable withholding; 3) interest at double the legal interest rate fixed by the Monetary Board; and 4) the amount of the claim. (Zenith Insurance Corp. vs. CA, 185 SCRA 398) XV. PRESCRIPTIVE PERIOD (Secs. 63 & 384) Rules: 1. In the absence of an express stipulation in the policy, it being based on a written contract, the action prescribes in 10 years. 2. However the parties may validly agree on a shorter period provided it is not less
B. CLAIMS SETTLEMENT
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XVI. MARINE INSURANCE Insurance against risks connected with navigation, to which a ship, cargo, freightage, profits or other insurable interest in movable property, may be exposed during a certain voyage or a fixed period of time. (Sec. 99) Coverage: A. 1. Vessels, goods, freight, cargo, merchandise, profits, money, valuable papers, bottomry and respondentia, and interest in respect to all risks or perils of navigation; 2. Persons or property in connection with marine insurance; 3. Precious stones, jewels, jewelry and precious metals whether in the course of transportation or otherwise; and 4. Bridges, tunnels, piers, docks and other aids to navigation and transportation. (Sec. 99) Cargo can be the subject of marine insurance, and once it is entered into, the implied warranty of seaworthiness immediately attaches to whoever
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is insuring the cargo, whether he be the shipowner or not. (Roque v. IAC, 139 SCRA 596) B. Marine Protection and Indemnity Insurance Classes of inland marine insurance: (Prof. De Leon, p. 325) 1. Property in transit provides protection to property frequently exposed to loss while it is transportation form one location to another. 2. Bailee liability insurance for those who have temporary custody of the goods. 3. Fixed transportation property they are so insured because they are held to be an essential part of the transportation system such as bridges, tunnels, etc. 4. Floater provides insurance to follow the insured property wherever it may be located, subject always to the territorial limits of the contract. Insurable interest: A. 1. Shipowner a. Over the vessel to the extent of its value, except that if chartered, the insurance is only up to the amount not recoverable from the charterer. (Sec. 100). b. He also has an insurable interest on expected freightage. (Sec. 103). c. No insurable interest if he will be compensated by charterer for the value of the vessel, in case of loss. 2. Cargo owner Over the cargo and expected profits (Sec. 105). 3. Charterer Over the amount he is liable to the shipowner, if the ship is lost or damaged during the voyage (Sec. 106). B. In loans on bottomry and respondentia
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS Ramos EDP: Beatrix I. Ramos SUBJECT HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario (Transportation Laws); Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
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condition when the policy attached and that the cargo was damaged when unloaded from the vessel; thereafter, the burden then shifts to the insurer to show the exception to the coverage. (Filipinas Merchants Insurance vs. Court of Appeals, 179 SCRA 638) B. Barratry Clause A clause which provides that there can be no recovery on the policy in case of any willful misconduct on the part of the master or crew in pursuance of some unlawful or fraudulent purpose without consent of owners, and to the prejudice of the owners interest. (Roque vs. IAC, 139 SCRA 596) C. Inchamaree Clause A clause which makes the insurer liable for loss or damage to the hull or machinery arising from the: 1. Negligence of the captain, engineers, etc. 2. Explosions, breakage of shafts; and 3. Latent defect of machinery or hull. (Bar Review Materials in Commercial Law, Jorge Miravite, 2002 ed.) D. Sue and Labor Clause A clause under which the insurer may become liable to pay the insured, in addition to the loss actually suffered, such expenses as he may have incurred in his efforts to protect the property against a peril for which the insurer would have been liable. (Sec. 163) MATTERS ALTHOUGH CONCEALED, WILL NOT VITIATE THE CONTRACT EXCEPT WHEN THEY CAUSED THE LOSS (Sec. 110) 1. National character of the insured; 2. Liability of the thing insured to capture or detention; 3. Liability to seizure from breach of foreign laws; 4. Want of necessary documents; and 5. Use of false or simulated papers. Note: This should be related to the general rule regarding material concealment. DISTINCTIONS ON CONCEALMENT (Commercial Law Reviewer, A.F. Agbayani, 1988 ed.)
Note: It is only perils of the sea which may be insured against unless perils of the ship is covered by an all-risk policy. SPECIAL MARINE INSURANCE CONTRACTS AND CLAUSES A. All Risks Policy insurance against all causes of conceivable loss or damage, except: 1) as otherwise excluded in the policy; or 2) due to fraud or intentional misconduct on the part of the insured. The insured has the initial burden of proving that the cargo was in good
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CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS Ramos EDP: Beatrix I. Ramos SUBJECT HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario (Transportation Laws); Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
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MARINE INSURANCE
The information of the belief or expectation of 3rd persons is material and must be communicated
The concealment of any fact in relation to any of the matters stated in Sec. 110 does not vitiate the entire contract but merely exonerates the insurer from a risk resulting from the fact concealed
IMPLIED WARRANTIES 1. Seaworthiness of the ship at the inception of the insurance (Sec. 113); 2. Against improper deviation (Sec. 123, 124, 125); 3. Against illegal venture; 4. Warranty of neutrality: the ship will carry the requisite documents of nationality or neutrality of the ship or cargo where such nationality or neutrality is expressly warranted; (Sec. 120) 5. Presence of insurable interest. While the payment by the insurer for the insured value of the lost cargo operates as a waiver of the insurers right to enforce the term of the implied warranty against the assured under the marine insurance policy, the same cannot be validly interpreted as an automatic admission of the vessels seaworthiness by the insurer as to foreclose recourse against the common carrier for any liability under the contractual obligation as such common carrier. (Delsan Transportation Lines vs. CA, 364 SCRA 24) Seaworthiness A relative term depending upon the nature of the ship, voyage, service and goods, denoting in general a ships fitness
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to perform the service and to encounter the ordinary perils of the voyage, contemplated by the parties to the policy (Sec. 114). GENERAL RULE: The warranty of seaworthiness is complied with if the ship be seaworthy at the time of the commencement of the risk. Prior or subsequent unseaworthiness is not a breach of the warranty nor is it material that the vessel arrives in safety at the end of her voyage. EXCEPTIONS: 1. In the case of a time policy, the ship must be seaworthy at the commencement of every voyage she may undertake 2. In the case of cargo policy, each vessel upon which the cargo is shipped or transshipped, must be seaworthy at the commencement of each particular voyage 3. In the case of a voyage policy contemplating a voyage in different stages, the ship must be seaworthy at the commencement of each portion Applicability of implied warranty of seaworthiness to cargo owners: It becomes the obligation of a cargo owner to look for a reliable common carrier, which keeps its vessels in seaworthy conditions. The shipper may have no control over the vessel but he has control in the choice of the common carrier that will transport his goods (Roque v. IAC, 139 SCRA 596). Deviation A departure from the course of the voyage insured, or an unreasonable delay in pursuing the voyage or the commencement of an entirely different voyage. (Sec.123) Instances: 1. Departure of vessel from the course of the sailing fixed by mercantile usage 2. Departure of vessel from the most natural, direct and advantageous route if not fixed by mercantile usage 3. Unreasonable delay in pursuing voyage
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS Ramos EDP: Beatrix I. Ramos SUBJECT HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario (Transportation Laws); Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
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2. Without abandoning vessel, claim for partial actual loss. (Sec. 155) 2. Partial: That which is not total (Sec. 128). AVERAGE Any extraordinary or accidental expense incurred during the voyage for the preservation of the vessel, cargo, or both, and all damages to the vessel and cargo from the time it is loaded and the voyage commenced until it ends and the cargo unloaded. GENERAL
Has inured to the common benefit and profit of all persons interested in the vessel and cargo To be borne equally by all of the interests concerned in the venture.
PARTICULAR
Has not inured to the common benefit and profit of all persons interested in the vessel and her cargo. To be borne alone by the owner of the cargo or the vessel, as the case may be.
Requisites for the right to claim contribution: 1. Common danger to the vessel or cargo; 2. Part of the vessel or cargo was sacrificed deliberatel y; 3. Sacrifice must be for the common safety or for the benefit of all; 4. Sacrifice must be made by the master or upon his authority; 5. It must be not be caused by any fault of the party
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7.
It must be made within a reasonable time after receipt of reliable information of the loss (Sec. 141); It must be factual (Sec. 142); It must be made by giving notice thereof to the insurer which may be done orally or in writing (Sec. 143); and The notice of abandonment must be explicit and must specify the particular cause of the abandonment (Sec. 144).
Effects: 1. It is equivalent to a transfer by the insured of his interest to the insurer with all the chances of recovery and indemnity (Transfer of Interest) (Sec.146) 2. Acts done in good faith by those who were agents of the insured in respect to the thing insured, subsequent to the loss, are at the risk of the insurer and for his benefit. (Transfer Of Agency)(Sec.148) If an insurer refuses to accept a valid abandonment, he is liable upon an actual total loss, deducting form the amount any proceeds of the thing insured which may have come to the hands of the insured. (Sec.154) CO-INSURANCE A marine insurer is liable upon a partial loss, only for such proportion of the amount insured by him as the loss bears to the value of the whole interest of the insured in the property insured. (Sec. 157) When the property is insured for less than its value, the insured is considered a co-insurer of the difference between the amount of insurance and the value of the property. Requisites: 1. The loss is partial; 2. The amount of insurance is less than the value of the property insured. Rules: 1. Co-insurance applies only to marine insurance
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One that burns in a place where it was intended to burn and ought to be Insurer is not liable
REINSURANCE
Situation where the insurer procures a 3rd party called the reinsurer to insure him against liability by reason of an original insurance. Basically, reinsurance is an insurance against liability which the original insurer may incur in favor of the original insured.
Measure of Indemnity 1. Open policy: only the expense necessary to replace the thing lost or injured in the condition it was at the time of the injury 2. Valued policy: the parties are bound by the valuation, in the absence of fraud or mistake Note: It is very crucial to determine whether a marine vessel is covered by a marine insurance or fire insurance. The determination is important for 2 reasons: 1. Rules on constructive total loss and abandonment applies only to marine insurance; 2. Rule on co-insurance applies primarily to marine insurance; 3. Rule on co-insurance applies to fire insurance only if expressly agreed upon. (Commercial Law Reviewer, Aguedo Agbayani, 1988 ed.) ALTERATION AS A SPECIAL GROUND FOR RESCISSION BY INSURER Requisites: 1. The use or condition of the thing is specifically limited or stipulated in the policy; 2. Such use or condition as limited by the policy is altered; 3. The alteration is made without the consent of the insurer; 4. The alteration is made by means within the control of the insured; 5. The alteration increases the risk; (Sec. 168) and 6. There must be a violation of a policy provision. (Sec. 170) Fall-of-building clause A clause in a fire insurance policy that if the building or any part thereof falls,
XVII. FIRE INSURANCE A contract by which the insurer for a consideration agrees to indemnify the insured against loss of, or damage to, property by hostile fire, including loss by lightning, windstorm, tornado or earthquake and other allied risks, when such risks are covered by extension to fire insurance policies or under separate policies. (Sec. 167) Prerequisites to recovery: 1. Notice of loss must be immediately given, unless delay is waived expressly or impliedly by the insurer 2. Proof of loss according to best evidence obtainable. Delay may also be waived expressly or impliedly by the insurer HOSTILE FIRE FRIENDLY FIRE
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Aside from compulsory motor vehicle liability insurance, the Insurance Code contains no other provisions applicable to casualty insurance. Therefore, such casualty insurance are governed by the general provisions applicable to all types of insurance, and outside of such statutory provisions, the rights and obligations of the parties must be determined by their contract, taking into consideration its purpose and always in accordance with the general principles of insurance law. In burglary, robbery and theft insurance, the opportunity to defraud the insurer the moral hazard is so great that insurer have found it necessary to fill up the policies with many restrictions designed to reduce the hazard. Persons frequently excluded are those in the insureds service and employment. The purpose of the exception is to guard against liability should theft be committed by one having unrestricted access to the property. (Fortune Insurance vs. CA, 244 SCRA 208) Right of a third party injured to sue the insurer 1. Indemnity against liability A third party injured can directly sue the insurer. 2. Indemnity for actual loss or reimbursement after actual payment by the insured A third party has no cause of action against the insurer (Sec. 53, Bonifacio Bros. v. Mora, 20 SCRA 261). The insurer is not solidarily liable with the insured. The insurers liability is based on contract; that of the insured is based on torts. Furthermore, the insurers liability is limited by the amount of the insurance coverage (Pan Malayan Insurance Corporation v. CA, 184 SCRA 54).
INTENTIONAL vs. ACCIDENTAL AS USED IN INSURANCE POLICIES 1. Intentional Implies the exercise of the reasoning faculties, consciousness and volition. Where a provision of the policy excludes intentional injury, it is the
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Passenger Any fare-paying person being transported and conveyed in and by a motor vehicle for transportation of passengers for compensation, including persons expressly authorized by law or by the vehicles operator or his agents to ride without fare. (Sec. 373[b]) Third Party Any person other than the passenger, excluding a member of the household or a member of the family within the second degree of consanguinity or affinity, of a motor vehicle owner or land transportation operator, or his employee in respect of death or bodily injury arising out of and in the course of employment. (Sec. 373[c]) No-Fault Clause A clause that allows the victim (injured person or heirs of the deceased) to an option to file a claim for death or injury without the necessity of proving fault or negligence of any kind. Purpose: To guarantee compensation or indemnity to injured persons in motor vehicle accidents. Rules: 1. Total indemnity - maximum of P5,000 2. Proofs of loss a. Police report of accident; b. Death certificate and evidence sufficient to establish proper payee; c. Medical report and evidence of medical or hospital disbursement. 3. Claim may be made against one motor vehicle only 4. Proper insurer from which to claim a. In case of an occupant: Insurer of the vehicle in which the occupant is riding, mounting or dismounting from; b. In any other case: Insurer of the directly offending vehicle. (Sec. 378) The claimant is not free to choose from which insurer he will claim the no fault indemnity as the law makes it mandatory that the claim shall lie against the insurer of the vehicle in which the occupant is riding, mounting or dismounting from. That said vehicle might not be the one that caused the accident is of no moment since the law itself provides that the party paying may recover against the owner of the vehicle responsible for the accident. (Perla
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may require, usually requiring attendance at trials or hearings. XX. SURETYSHIP An agreement whereby a surety guarantees the performance by the principal or obligor of an obligation or undertaking in favor of an obligee. (Sec. 175) It is essentially a credit accommodation. It is considered an insurance contract if it is executed by the surety as a vocation, and not incidentally. (Sec. 20 When the contract is primarily drawn up by 1 party, the benefit of doubt goes to the other party (insured/obligee) in case of an ambiguity following the rule in contracts of adhesion. Suretyship, especially in fidelity bonding, is thus treated like non-life insurance in some respects. Nature of liability of surety 1. Solidary; 2. Limited to the amount of the bond; 3. It is determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee. (Sec. 176) SURETYSHIP
Accessory contract 3 parties: surety, obligor and oblige Credit accommodation Surety can recover from principal Bond can be cancelled only with consent of obligee, Commissioner or court Requires acceptance of obligee to be valid
Risk-shifting device; premium paid being in the nature of a service fee
PROPERTY INSURANCE
Principal contract 2 parties: insurer and insured Contract of indemnity Insurer has no such right; only right of subrogation May be cancelled unilaterally either by insured or insurer on grounds provided by law No need of acceptance by any third party
Risk-distributing device; premium paid as a ratable contribution to a common fund
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LIABILITY OF INSURER IN CERTAIN CAUSES OF DEATH OF INSURED 1. Suicide Insurer is liable in the following cases: 1. If committed after two years from the date of the policys issue or its last reinstatement; 2. If committed in a state of insanity regardless of the date of the commission unless suicide is an excepted peril. (Sec. 180-A) 3. If committed after a shorter period provided in the policy Any stipulation extending the 2-year period is null and void. 2. At the hands of the law (E.g. by legal execution) It is one of the risks assumed by the insurer under a life insurance policy in the absence of a valid policy exception. (Vance,p.572 cited in de Leon, p. 107) Note: Justice Vitug believes that death by suicide (if the insured is sane) or at the hands of the law obviates against recovery as being more in consonance with public policy and as being implicit under Section 87, ICP. (Pandect of Commercial Law and Jurisprudence, 1997 ed. P. 191) 3. Killing by the beneficiary GENERAL RULE: The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the principal accomplice or accessory in willfully bringing about the death of the insured, in which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified. (Sec. 12) EXCEPTIONS: 1. Accidental killing 2. Self-defense 3. Insanity of the beneficiary at the time he killed the insured If the premiums paid came from conjugal funds, the proceeds are considered conjugal. If the beneficiary is other than the insureds estate, the source of premiums would not be relevant. (Del Val v. Del Val, 29 Phil 534) The measure of indemnity in life or health insurance policy is the sum fixed in
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insurance company providing for benefits or other contractual payments or values thereunder to vary so as to reflect investment results of any segregated portfolio of investment. XXIII. INSURANCE COMMISSIONER Main agency charged with the enforcement of the Insurance Code and other related laws. Functions: 1. ADJUDICATORY/QUASI-JUDICIAL a. Exclusive original jurisdiction Any dispute in the enforcement of any policy issued pursuant to Chapter VI (CMVLI). (Sec. 385, par. 2) b. Concurrent original jurisdiction (with the RTC) Where the maximum amount involved in any single claim is P100,000 (Sec. 416), except in case of maritime insurance which is within the exclusive jurisdiction of the RTC. (BP 129; admiralty & maritime jurisdiction) Where the amount exceeds P100,000, the RTC has jurisdiction.
FIRE INSURANCE
Contract of indemnity Open or valued policy The insurable interest of the transferee or assignee is essential Consent of insurer must be secured in the absence of waiver Contingency insured against may or may not occur
May be cancelled by either party and is usually for a term of one year Insured is required to submit proof of his actual pecuniary loss as a condition precedent to collecting the insurance.
XXII. VARIABLE CONTRACT Any policy or contract on either a group or individual basis issued by an
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The Insurance Commissioner has no jurisdiction to decide the legality of a contract of agency entered into between
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS Ramos EDP: Beatrix I. Ramos SUBJECT HEADS: Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario (Transportation Laws); Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
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